Whether you are thinking of making or advising on an investment in fine wine, either through a fund or an account with a wine merchant, broker or other entity, your counterparty needs to be thoroughly researched.
You must ensure the following ‘golden rules’ are met:
1 The entity should have a genuine physical office and not a virtual or serviced address with only mail-forwarding and call-answering services. Visit the office if possible.
2 The entity through which you are investing should take physical possession of all wines purchased and the wines should be stored in a UK government-bonded warehouse. If in doubt, ask to visit the warehouse to view the wines.
3 The wine should be fully insured at replacement value.
4 The wines should be regularly valued and reported on. Valuations should be carried out independently by Liv-ex, the fine wine exchange, which is currently the only source of reliable pricing information.
5 All costs associated with the investment, including the buying and selling of the wine and the redeeming and managing of your holdings, should be clear and transparent at the beginning of the investment period.
6 There should be no conflicts of interest. The interests of the fund manager or adviser should be aligned with those of the investor.
7 Avoid any cold-calling and unsolicited mail – not only is this bad practice, but it is also very likely to be illegal. In the UK, there are regulations preventing the promotion of an investment in fine wine to the general public. Avoid any firms making promises of guaranteed returns.
8 Always check documentation. Information Memoranda (IM) should be issued by a firm authorised and regulated by the FSA in the UK or similar regulatory bodies operating in other jurisdictions. There must be a transparent legal structure, with internationally recognised lawyers and auditors named in the IM.
9 Look for an experienced management team – not an individual – with a minimum of five years’ experience, the minimum required by institutional investors. There should be a clearly defined investment process, not an attitude of ‘if all goes wrong we can drink the assets’. You are investing to make money. To this end, there should be specific investment criteria concerning the wines to be invested in.
l0 Invest in ‘liquid’ wines – wines with sufficient liquidity and volume of supply and well-established track records. The risk profile of the investment can rise considerably if the wine portfolio contains less liquid wines (for example, those outside the top châteaux of Bordeaux), very young or en primeur wines, wines older than around 25 years and wines not in standard size bottles (75cl or 150cl).
Source: The Wine Investment Fund (TWIF)